Alternate Loan Fund Praised for Helping Smaller Banks Grow

Some of the bankers who took Troubled Asset Relief Program money during the financial crisis four years ago wished they hadn’t because the interest rate was too high, the restrictions on pay and shareholder dividends were too cumbersome and TARP participation was bad for the bank’s image.

Now those who replaced their TARP capital last year with new capital infusions from a different federal program, the Small Business Lending Fund, are glad they did because the interest rate is lower and comes with fewer limitations. It has helped them increase lending and profits, they say.

“It is one of the better programs the government put out,” said Anthony C. Weagley, chief executive officer of Union, N.J.-based Center Bancorp, the holding company for Union Center Bank and one of at least four New Jersey banks that paid off TARP with money from the fund.

The program to spur small business lending and create jobs, maligned by some as another taxpayer bailout for banks, and criticized by Republicans in Congress as unnecessary and too expensive, is receiving high praise from some bankers who signed up.

Banks have been eager to get out of TARP and many have done so by raising capital on their own. But some that couldn’t raise enough capital on their own to pay it off turned to the SBLF, which is part of the Small Business Jobs Act signed into law by President Barack Obama in September 2010.

The Treasury has invested more than $4 billion in 332 banks and financial institutions, so they could make more loans to small businesses, and 137 of them used the money or part of it to pay off TARP — which has done little to spur lending, according to an April 25 inspector general report.

The interest rate on the small-business lending program’s capital funding, paid by the banks to the U.S. Treasury, can be as low as 1 percent, depending on the amount of loan growth. The interest rate on TARP is 5 percent and will increase to 9 percent in late 2013.

SBLF participants also have a strong incentive not to rely on the program for very long. After 4 1/2 years, the rate increases to 9 percent. And if lending does not increase in the first two years, the rate increases to 7 percent.

The banks that qualified to refinance their TARP borrowings through SBLF were “better capitalized and financially stronger than those that remained in TARP,” the Inspector General said.

Since the program began in mid-2011, participants increased their small-business lending by $4.8 billion, or 13 percent, as of Dec. 31, according to the SBLF’s April report to Congress.

The program gives banks with less than $10 billion in assets an incentive to make loans to businesses with less than $50 million in annual sales. These loans can include commercial and industrial loans, owner-occupied commercial real estate loans and farm loans.

Paul Van Ostenbridge, CEO of Midland Park, N.J.-based Stewardship Financial, holding company for Atlantic Stewardship Bank, said the program has been “a very positive experience.”

The lender received $15 million from SBLF last year and paid off the $10 million it owed on TARP.

The funding is helping the bank make more loans, in addition to lowering interest payments, Van Ostenbridge said. The bank has added $15.4 million in qualifying small business loans to its books in the past year. “That was our main goal — to spur additional loans,” he said.